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Patent ruling may mean fewer sales bans

A federal judge has made the first of several rulings in a case that could have a major effect on the patent wars that have plagued the smartphone and tablet markets.

As we covered recently, the case between Microsoft and Motorola (now part of Google) involves patents that related to widely used technical standards. It’s widely agreed that anyone who claims such a patent must license it on “fair, reasonable and non-discriminatory” terms.

The theory is that if companies don’t do this and instead keep all the benefits of the technology to themselves, there’ll be less individual incentive to work on developing standards, which in turn hurts the entire tech industry.

In this current battle, it’s expected the court will not only rule on the facts of the case but may also set a precedent on several key points of law when it comes to how “frand” (or “RAND”) terms work in practice.

In short, Motorola says Microsoft used its patents without permission, while Microsoft says it tried to agree terms but Motorola’s demands were unreasonable.

The first important ruling went in Microsoft’s favor when Judge James Robert refused to give Motorola an injunction for a sales ban. It wanted the relevant products pulled from the shelves until and unless the two sides reach a licensing deal (with or without the court’s force behind it.)

The judge specifically ruled that because this is a standards-essential case, there’s no call for an injunction. He reasoned that injunctions should only apply where there’s a prospect of irreparable harm. In a case like this, where Microsoft does have a fundamental right to use the Motorola technology and it’s just a case of working out a fair price, that isn’t the case:

…the issue was not if, but when and under what terms, a license agreement would be established between Microsoft and Motorola. Thus, because Motorola has always been required to grant Microsoft a RAND license agreement for its H.264 standard essential patents, as a matter of logic, the impending license agreement will adequately remedy Motorola as a matter of law.

If, as expected, this ruling is taken into account in other cases and possible other jurisdictions, it may have a major impact of the way patent holders operate. If you know you can’t get a sales ban but you’ll definitely wind up getting a payment for another firm using your standards-essential tech, it becomes in your interest to reach a deal as soon as possible and get the cash right away. If you pursue the matter in court, your gambling not only that you’ll wind up with a better royalty rate, but that it will prove worth the wait for payment.

The other main ruling from this case isn’t expected until the spring. That’s when the judge will decide exactly how to determine “reasonable” royalty rates. Though the precise figures may be specific to this case, the judge could settle wider issues such as whether royalty payments should be based on the price of a product or just the specific component that uses the patented technology.